When Clauses Clash

We lean on insurance policies to help provide relief when injured. In an ideal world, such dealings would be straightforward and uncomplicated. However, in the world of insurance policies and insurance law, such simplicity is not always the case. A recent decision from the Court of Appeal for Ontario highlights one of the curveballs that can happen in insurance law – when someone is injured, and is covered by two policies that conflict with one another.

Conflicting insurance policies

The passenger of a boat claimed she was injured when the 17/.5 foot, 135 horsepower boat she was riding in struck the shoreline. She sued both the driver of the boat as well as its owner. The driver was covered by the boat owner’s insurance policy (the “TD policy”), but he was also covered by his own homeowner’s policy (the “Intact policy”). The problem was that both policies had identical clauses that stated their policy was only to be considered excess insurance if there was another policy in place. The clauses read,

“If you have other insurance which applies to a loss or claim, or would have applied if this policy did not exist, this policy will be considered excess insurance and we will not pay any loss or claim until the amount of such other insurance is used up.”

Initially, TD had applied for a ruling that both the insurance companies should share equally in the defence and indemnity of the driver. The application judge began their analysis by citing a 2002 decision from Supreme Court of Canada (“Family Insurance”) which found in that case “because the two ‘other insurance clauses’ were irreconcilable, the insurers were required to share their obligations.” The Supreme Court of Canada also stated in that same decision that only the text of the policies should be used in interpreting their meaning. In this case, application judge noted that the TD policy contained a personal liability extension that insured liability from the specific boat involved in the accident, and that the policy charged an additional premium ($516) for this coverage. Meanwhile, the Intact policy provided similar coverage, but for “claims arising out of (his) use or operation of any type of watercraft.” The judge found the TD policy intended to be the primary insurance coverage for the boat, and as such dismissed TD’s application. TD appealed this decision

On appeal

The court began by stating the application judge erred in using an outdated approach, known as the “Minnesota approach” which the Supreme Court of Canada expressly rejected in Family Insurance. The Minnesota approach applies a “closeness to the risk” analysis, asking:

  1. Which policy specifically described the accident-causing instrumentality?
  2. Which premium is reflective of the greater contemplated exposure?
  3. Does one policy contemplate the risk and use of the accident-causing instrumentality with greater specificity than the other policy – that is, is coverage of the risk primary in one policy and incidental to the other?

As mentioned above, the Supreme Court rejected this approach to overlapping coverage. Instead of looking at closeness to the risk, the decision in Family Insurance states “the focus of the examination is to determine whether the insurers intended to limit their obligation to contribute, by what method, and in what circumstances vis-à-vis the insured” The court went on to state that when there are no limiting intentions, or when those intentions cannot be reconciled, the insurers must share the burden equally.

The court in this case found there to be two essential questions that needed to be asked. The first is whether there was overlapping coverage, which the court found there to be. The second question asks whether the insurers intended to limit their obligation to contribute (and if so, by what method). The answer here is that they both did, but in a way that was irreconcilable. As such, the court found the two insurance companies must share the obligations equally.

Contact Derfel Injury Lawyers if you have been involved in a boating accident, motor vehicle accident, or have been injured in some other way. Out team works tirelessly to achieve the best resolution for our clients. Please call us at 416.847.3580 or contact us online to talk today.